Happiness to Anger: Why and How Emotions drive Economic D. Decisions

Transcription

1 Happiness to Anger: Why and How Emotions drive Economic Decisions University of Exeter Professor of Economics Head of Department Director; Behaviour, Identity, Decision Research Cluster October, 2017

2 Everybody wants to be happy. Ultimate goal in life? One ingredient amongst others (e.g. human development and justice). Curiously, economist have mostly shied away from the concept.

3 In psychology, long tradition of studying moods/emotions. Economist Robert Frank (1988) argues that natural selection has favoured those whose decisions are influenced by emotions.

4 Consequentialist Framework of Economics Choice between alternative A and B. Decision maker assesses desirability and likelihood of their consequences. Some kind of expectation based calculus. Desirability of an outcome = utility. Decision making is depicted as maximizing utility.

5 Is there room for Emotions? Expected emotions (experienced when outcomes of decisions materialise, e.g. regret). Immediate emotions (experienced at the moment of choice). Integral emotions (arise from thinking about the consequences of one s decision, e.g. guilt, disgust, fear) Incidental emotions (unrelated to choice, e.g. environmental factors, pain, happiness, anger) Struggle between passions and the impartial spectator Adam Smith (1759)

6 (Rick and Loewenstein, 2008, Chapt. 9, Handbook of Emotions). This is were behavioural economics comes in.

7 Behavioural Economics The Nobel Prize for Economics in 2017 goes to Richard H. Thaler. It is about the way actual people behave as opposed to the way economists think people behave (like) people who are highly rational, unemotional creatures kind of like Spock in the Star Trek TV series, Thaler explained. The people I study are humans that are closer to Homer Simpson. We humans don t always choose the right thing, he continued. Sometimes we overeat. Sometimes we exercise too little. Many of us have trouble saving enough for retirement.

8 The problem seems to be that while economists have gotten increasingly sophisticated and clever, consumers have remained decidedly human. This leaves open the question of whose behavior we are trying to model. Along these lines, at an NBER conference a couple of years ago I explained the difference between my models and Robert Barro s (a well known rationalist) by saying that he assumes the agents in his model are as smart as he is, while I portray people as being as dumb as I am. Barro agreed with this assessment. Richard H. Thaler, The Winner s Curse, 1994, pp

9 A lot of evidence for correlation. Not all that much on causality.

10 Social Preferences Homo economicus does not really exist.

11 Ultimatum Game and the Brain fmri studies (Sanfey, Rilling, Aronson, Nystrom and Cohen, Science 2003) Use of functional magnetic resonance imaging. Focus on responder behavior. Comparison between fair and unfair offers ($10, $5 $5, $9 $1 and $8 $2). People who show high activation in anterior insular, an area associated with emotions like disgust when contemplating about accepting or rejecting an unfair offer, are more likely to reject. Dorsolateral prefrontal cortex (an area associated with cognition) gets activated by unfair offers. Disgust usually studied as response to physical sensations of taste and odor, study suggests emotion based disgust is conceptually similar.

12 BRLSI So, what have a I done? I Lots of carefully designed, incentivised and controlled experiments and a few field experiments.

13 BRLSI The Importance of Relative Payoffs Charness and Grosskopf (2001, JEBO) I I x < 600 x = < x < 1200 x = % 10.2% 7.4% 74.1% Misery loves company: people who are self reportedly less happy, decrease other person s payoff below their own.

14 The Effect of Anger on Pro Social Behaviour Drouvelis and Grosskopf (2016, JPubE) In a social dilemma situation, where people have to decide between keeping resources for themselves or share them with other group members for mutual gain, people who are induced to be angry, share less (6% - 12% less than others).

15 The Demand for Expressing (Emotions) Grosskopf and López Vargas (2014, working paper) Let people individually generate income and then one is randomly given the possibility to take money away from the other participant. We measure how much people are willing to pay in order to say something. Distinction between who they could be sending a message to (the person who took the money or an independent third party). People are willing to spend about 13% (5%) of their available resources to send a message to the taker (third party). People who can express are happier.

16 Works in Progress FEELE Lab at University of Exeter Purchased hardware to gather physiological measurements (e.g. GSR) Project with HMRC Value of good customer care

17 Thank you! Oh, and before I forget....

18 BRLSI Two things that make me happy